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TITLE:
PRESS CONFERENCE WITH WORLD BANK PRESIDENT JAMES WOLFENSOHN
[INTERFAX, 12:30, JUNE 3, 2004]
SOURCE: FEDERAL NEWS SERVICE (http://www.fednews.ru/)

Moderator: Good day, colleagues. I am delighted to introduce the President of the World Bank Mr. James Wolfensohn. We are grateful to Mr. Wolfensohn for finding time to answer our questions. I would also like to introduce the Director of the World Bank for Russia Ms. Kristalina Georgieva and the head of the Foreign Relations Department of the World Bank Office in Russia Marina Vasilyeva.

Vasilyeva: We are very glad to see you here and I hope that Mr. Wolfensohn will introduce Mr. Kristalina Georgieva. Some of you know her and some don't. So, I turn it over to Mr. Wolfensohn.

Wolfensohn: Well, let me introduce Ms. Georgieva. I think you know that I am here for the conference on corporate governance. And I will also have the opportunity in speaking to the prime minister, the deputy prime minister. And last night I had the chance of meeting with Mr. Putin and Mr. Gref and so I am trying in the space of 24 hours to catch up of what is happening in Russia. I am pleased to see that the country continues to grow and I am very impressed by the conference this morning on the subject of corporate governance with so many Russian businesses present.

I also had a very exciting hour with some young people from Moscow. We are reaching out to people in the age of 20-25 in our operations around the world and a Russian representative was just at a meeting that we had in Shanghai. I have to say I was really impressed by this group of young people and I look forward to working with them and helping them to pursue the issues that they care about. We talked about corporate governance and ethics. We talked about the 700,000 children that are in institutions or without family support. We talked about the problem of AIDS and had what I thought was an extremely constructive discussion.

So, I would be happy to answer any questions.

Q: We heard this morning the prime minister talking about what Russia should do to improve corporate governance. What's the World Bank's view of what Russia should do to make Russian companies better governed?

Wolfensohn: I think the first thing that the Russian government has to do is to complete its system of reform. It has already changed a number of aspects of corporate governance, but probably still needs to strengthen its bankruptcy code, and most importantly to deal with the question of legal and judicial reform. Which includes a cleanly operating judicial system and an ability to speedily implement judgments that are made. But beyond that there is the question of corporate culture wanting to try and reform. One really needs the cooperation of business to create a healthy business climate. And as I said this morning, the purpose of the conference is not to lecture Russian businessmen and to give them a solution that was created in Washington or London or Paris.

It's to make them recognize that in their interests a smoothly functioning, transparent system is likely to be more stable and to make them more money. It's not very complicated, as I said this morning. People will not invest in companies if they think the boss is going to steal their money. And they are not going to invest in companies if they can't protect their rights. So, if companies are to grow you need a system of moral and ethical behavior which needs to be followed by the community.

And I was interested that the prime minister this morning said that there needs to be a systemic change which is not just government but is also the behavior of business. The only last thing I would say that this is not just a question of foreign investment, this is also of investment by Russians. And frankly, I think that's the more important issue.

Q: Can I ask you if the Yukos case affects the Russia's relationships with the international financial organizations and if yes, how? And what's your personal opinion about that?

Wolfensohn: Well, the Yukos case has clearly unsettled the markets. The voting that shareholders are doing has already reduced the averages here by something more than 25 percent and that reflects of whether the Yukos case is an individual case or whether it is a systemic change. I am inclined to believe that it is not a systemic change. But even if it is not a systemic change, it needs to be dealt with very carefully. Because the impact of big losses in Russia's largest company cannot be positive. And it would be my hope that the Russian authorities understand this and will deal with it in an appropriate way.

Q: You said you met with ministers Kudrin and Gref yesterday and you have yet to meet with Fradkov. How will Russia and the World Bank cooperate in the years to come? Can you give us any figures, maybe the amount of investment?

Wolfensohn: Yes, I think that the relationship has matured quite a lot. Five years ago I was getting phone calls in the middle of the night saying, did we have six billion dollars for Russia? And if I did not have it by tomorrow morning, Russia would collapse. Thank God, that has changed. Now Russia has so much money that it does not need us. Or rather it does not need us as much.

But what I think the Russian authorities are clear on is that we are more valuable to them than just for money. We continue to work with them both in giving them strategic and project advice from the aspect of the bank which we call the knowledge bank. But we are also going to be doing somewhere I think between a billion, a billion and a half dollars over a three-year period.

That just keeps the relationship going on lending. But it's very much small than we used to be doing. But this is not just so with Russia. It's with many of the middle-income countries. And in a way it is logical. If you have the money, you so often don't need to borrow. Why borrow? Particularly if you have a need to borrow, you know that the World Bank will lend to you. So I basically am much happier than being disturbed in the middle of the night. And we are, I think, developing a more mature relationship.

Q: President Putin has instructed its government to double the GDP. So it's being the talk of the town for more than a year now. And last week he said he set an annual 3-percent inflation target. The question is by what time -- he set no concrete timeframe, especially for inflation target -- can Russia realistically implement the two ambitious tasks? And you as an economist, do you believe that Russia can sustain this kind of growth tempo if it so radically stems out of inflation?

Wolfensohn: The first thing is that I think that the president is wise to set stretched targets. Russia is a country that has natural resources and human resources that are extraordinary. And as he said in his speech, which touched me a lot, he said the answer is within ourselves. I've just come from China where they are talking 9 or 10 percent growth. So it's not impossible. And China is doing it with a bit over 3 percent inflation.

So I think the first thing that you have to say about Russia is that if you get things right and you want to do it, that's a target that you could achieve. And to get there you need a sense of urgency. And you need a willingness to put your foot on the accelerator. If you still keep looking backwards and inwards and at each other, the chances are you won't make it. But if you take some risks, bring about the changes in the government, bring about changes in corporate governance, bring about transparency, attack corruption, you can do it.

I read the president's speech as a challenge. And I think you are lucky if you put the challenge there. How different would it be if he said, we can have 4 percent or 5 percent growth, we still have 20 percent of people in poverty in the next two years. It'd be terrible. So I think what Russians need is a sense of confidence and a sense of risk. And a willingness to change. And as he said, not because of foreigners but because Russia needs it.

Q: A question about the G8. The G8 summit is going to talk about the IMF and the World Bank. What do you expect to come out of these discussions? And why are you on the agenda? And I think it's going to be another new head of the IMF soon. What's the biggest problem facing the IMF?

Wolfensohn: Well, I am not quite sure why we are on the agenda for reorganizing the bank. We've been reorganizing for nine years and made huge changes. Our clients seem to appreciate what we are doing. But I of course will be very interested to find out what the G8 would like us to do. They haven't yet told me. So I will welcome their observations. And I am sure they will have excellent ideas and we will be glad to consider them.

And as to the IMF, they have just appointed a new head, Mr. Rodrigo Rato from Spain. And I think you should direct your questions to Rodrigo. But we will continue to work very closely with the IMF. And I am assured of Mr. Rato's full cooperation.

Q: There are all kinds of predictions about the next possible world economic crisis because of oil crisis, because (inaudible)... What do you think about economic stability in the world now and these predictions?

Wolfensohn: Well, I don't have any predictions. I am aware that there are problems, but I am also aware there are some good things happening. A lot of companies in the developing countries, in the developing world have much improved performance. India and China that are two of our clients, 2.3 billion people, are doing pretty well. And other countries in the developing world, Brazil, Nigeria, are really, I think, attacking their problems.

At the moment you have significant growth in the United States. Europe seems to be turning around. Japan, where I was yesterday, is very confident. So, those are the good things.

But there are the bad things you mentioned. I tend to work on the good things and I am certainly not pessimistic.

Q: You said that Russia needs sense of confidence and the willingness to change to reach the targets set by Mr. Putin. As far as the willingness to change is concerned, what kind of changes are needed?

Wolfensohn: Well, I think that they are the ones the President outlined in his own speech. I think the first thing is that he indicated that he wants to bring about the benefits of growth to more people. He talked about only having come back 40 percent against the pre-change period in terms of the poverty statistics.

I am sure you know that with the collapse of the communist system many more people were thrown into poverty. And he talked of three phases. The breaking down of the communist system. The second phase was cleaning up the mess, and the third phase is growth. Russia is now in the third phase.

And I think he laid down the three important things that need to change. One is the education, the other is health, and the third is housing. And those three elements will reach the greatest majority in the people. But the other is economic growth. And economic growth will come with the sort of thing that this conference is about: changing corporate management, creating an environment where people want to invest and opening up the market to small and medium-size enterprise.

And, may I say, doing it all in a sustainable environment from an environmental point of view. Those are the changes he's called for. Plus a reduction in the size of government. And it looks as though he is trying to do that. And that's quite a lot of changes. And so it won't happen overnight, but if the government sticks with it, it's the direction that they should go. I think it's a good plan.

Q: You noted that it is necessary to rely not only on the raw materials potential and oil resources but also on -- (inaudible) -- potential. What would you recommend? This is clear. What should be done in particular?

Wolfensohn: Well, there are a number of things. The first thing is that Russia had a history of excellence in its educational system. Very high standards in both science and culture. I think you need to have a clean and effective educational system. Having spoken to this group of young people today, it sounds as though there is some room for improvement. I did not realize that today, but they talked about corruption in the educational system, which may or may not be correct, but it's what they said. And if that is true, that should be attacked straight out.

The second thing is that you want to get opportunities for people regardless of their level of intellect. Say, you want a stream for the very bright, but you also want a stream for the average person. And that means giving the average person a fair chance to work, a fair chance to accumulate assets and, as the President said, an opportunity for free life, and a safe life.

And I think one of the ways that you can do that is to create more opportunities for jobs and more opportunities for young and not so young entrepreneurs to create small and medium-size enterprise. This country does not have enough small and medium-size enterprise. And yet you have many people who could be entrepreneurs if they could easily form businesses and could finance them.

So you need to spread the benefits of economic development from just a group at the top to give opportunities throughout the society in both industrial and rural areas. You still have very poor rural areas. And you have sectors of the country in the south and the north, and in the east even which you need to focus on with focused interventions. Growth alone will not do it. You have to focus on the people that need help. But the help should not be charity. The help is to give them an opportunity to do things for themselves.

And I have just come from this conference in China where that's all we were talking about. We considered 60 countries and their experiences. And the key is to give people the opportunity to make their lives, and to give them an equal opportunity, and to attack corruption, and to attack the regulatory barriers.

And frankly I think if you can do that in this country, you have a fantastically creative people, so I would be driving all the time to empower people, to create the environment in which they can function freely. And let me say that this is not either an unrealistic or a particularly brilliant idea because this is what is happening in many other countries. And if you do that a country grows. And if you don't do that, it doesn't go. But this is not putting someone on the moon, this is achievable. But it requires persistence and it requires confidence that you can do it. There aren't just 22 people in Russia who can build businesses.

Q: It was announced that the new government has been formed in Iraq. How's Russia contributing to the development of Iraq's economy in the context of its death problem and so on?

Wolfensohn: Well, I think there are several issues in Iraq. The first is the restoration of security. If you cannot restore security, it's very difficult to have investment. It's even quite difficult to get the kids back into school and to have the health system function. At least we've made some progress on education and health, but the reconstruction of the country is a different matter and depends almost entirely on restoration of security. We have done the plan for Iraq and we are working there at a distance, we have an office in Jordan and we have video conference facilities inside the green zone in Baghdad. We have signed two loans this week in education. For textbooks and for schools.

But that is a fraction of what needs to be done. But I cannot send my people in because it's not as though you don't have people in difficult areas like Kosovo or former East Timor or in the Congo. In those places it's dangerous, but in Iraq our people are targets, and that's different. One of my people was killed and three were severely injured.

So, security is No. 1, No. 2 is when the government is installed and hopefully restores security, there will be a need for investment and my guess is some Russian companies will be very interested both in investment, particularly in the oil sector, and also working in construction and the provision of services. And I think with a new government there'll be equal access to opportunities.

And the third issue is the issue of outstanding debt. Iraq has approximately 120 billion dollars, plus some other claims from the last Iraq war. And if that debt is 500 or 600 percent of the gross national product of that country, then you will have to have debt forgiveness. As you know, Secretary Baker went round the world, he was looking for 80 or 90 billion dollars of debt forgiveness. And I think it's going to be a key issue in the coming months. Something will have to be done, but I am not familiar with the projections, sufficiently familiar with the projections on oil, nor with the details of the debt negotiations to be able to say where Russia hits in. That has been directly negotiated by the American authorities, and not by the Bank. But that is going to be a central issue. And my guess is the willingness of the people to forgive debts will depend on who is in government.

So, we come back to the first observation about the new government. And I think your governments will be looking very carefully at what are the future opportunities for Russia, how stable is the government and what can they get in return for that forgiveness. Which is why I say I think there'll be negotiations. But we've not been in the middle of it.

Q: Putin recently said that Russia doesn't need investments in the form of money, that we need investments in the shape of technology and perhaps even together with the managing personnel. Do you share the low opinion of the capacity of Russian enterprises?

Wolfensohn: I am not an expert on research and development in Russia, but from what I hear from some of the leadership in this country, including President Putin, I think that they feel the need to have a greater interchange of science and technology and of developments in technology with the rest of the world. That is not surprising because research and technology is now a global market. And it flows backwards and forwards with ownership and with partnerships. So, Russia can make very substantial gains in some aspect of technology. It'll still be lagging in many other aspects. That is not a crime. I think what he is saying is that Russia needs to be more part of the international system of science and technology. And the present corporate structure here is not putting enough into research and development.

Even though there are some very good examples of advances in science and technology. But if you take communications technology for example, it may be that you have to look to India or China. The United States is looking to China in some aspects of technology. And in some aspects of agriculture you may be looking to developing countries. I believe what the president is driving for in all his speeches is the equal participation of Russia in the global economy. Not more or less than an equal participant. And part of that is having an exchange in science and technology. But I would say also that I think the capital markets need to be deepened. And what we talked about today in the conference in terms of corporate governance is a necessary condition. Not just for money but for confidence in passing technology. You need to protect the monetary investment but you also need to protect technological investment. So the building of confidence, I think, is key both to money and technology.

Moderator: Dear members of the press, thank you.